Rand firms on slightly weaker dollar as market eyes Fed minutes

The rand regained some lost ground on Tuesday afternoon, appearing to consolidate below R14 to the dollar in what analysts believe might be the start of a marginal rebound from oversold levels.

TreasuryOne trader Andre Botha said the rand appeared to be stretched at present levels.

The rand has lost 10.6% in 2018, its worst performance since 2015 when it slumped 33.8%. It recovered 11.19% in 2016, having reached its weakest level on record, of R17.7893 to the dollar, on January 15. It lost 9.87% in 2017.

The rand, together with other emerging-market currencies, has been hammered in 2018 on concerns of an escalating global trade war, a sell-off in emerging markets, portfolio outflows and perceived local political and economic risk issues.

“We believe the rand is caught up in the international noise and should start to recoup some of its losses as the dust begins to settle,” Botha said.

The rand firmed on the day as the dollar softened slightly to the euro ahead of the release of the latest minutes of the US Federal Reserve on Thursday. This might give an indication as to the extent of hawkish views in the Fed, with the market pricing in another two interest-rate hikes this year.

Higher interest rates in the US tend to support the greenback. The dollar has gained 3% on the euro so far in 2018, with a favourable economic backdrop creating an opportunity for the Fed to normalise its monetary policy.

At 3.06pm, the rand was at R13.7329 to the dollar from R13.8307. It was at R15.9964 to the euro from R16.1011, and R18.111 to the pound from R18.1765.

The euro was at $1.1648 from $1.1638.

Local bonds were firmer on the rand’s recovery, and following the release of a measured report on SA from ratings agency Moody’s. According to Moody’s, local bonds have remained resilient in the face of tightening external conditions. “We still assess SA’s vulnerability to a tightening in financing conditions, including external financing conditions, as low.”

However, it warned that sustained tightening of financing conditions would further reduce the government’s fiscal flexibility.

Yields for 10-year local government bonds denominated in US dollars are now above 5.6%, while rand-denominated bond yields are above 9%, from this year’s recent lows of about 4.5% and 8.1%, respectively.

Foreigners hold 41% of South African government debt, up from 36% at the end of 2016.

The R186 was last bid at 8.84% from 8.88% and the R207 at 7.52% from 7.56%.

The US 10-year treasury was at 2.8687% from 2.8678%.